Clothier falls on his sword in Dalgety shake-up

Dalgety, the Winalot and Felix pet food group, has been laid low by a combination of the BSE crisis and the mis-managed integration of the Quaker European pet foods acquisition in 1995. Now, after two profits warnings in four months, it is parting company with its chief executive and selling two main businesses. Around pounds 200m will be returned to long- suffering shareholders as a result.
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Dalgety bowed to the inevitable yesterday when it announced a radical shake-up of its under-performing portfolio along with the resignation of its chief executive, Richard Clothier.

Mr Clothier, chief executive since 1993, was on a two-year contract and will be in line for a pay-off of up to pounds 600,000. He will be replaced by Ken Hanna, finance director, who joined Dalgety in May. The company is expected to look outside to replace him.

Mr Clothier, who has spent the last 20 years at Dalgety, made his decision to quit at the weekend after the completion of a 10-week strategic review of the group's operations. The company said his departure was "by mutual agreement".

Dalgety chairman Sir Denys Henderson said: "He felt that the strategy was changing and the results had been disappointing. He took the honourable course to fall on his sword." He denied that the pay-off, which is subject to mitigation, represented a reward for failure even though Dalgety's shares have underperformed the market by over 60 per cent during Mr Clothier's tenure. "We are meeting the obligations in the contract as it is proper to do. I think he was disappointed and inevitably a little sad. But someone has to carry the can in these circumstances."

As part of the strategic review, Dalgety yesterday put two of its four main businesses up for sale. Buyers are being sought for its food ingredients business and Martin Brower, the US distribution operation that services McDonald's, the fast-food giant. The proceeds will be used to reduce pounds 255m of debt and to return around pounds 200m to shareholders. The slimmed down company will concentrate on three divisions: pet foods, the Pig Improvement Company and agricultural supplies.

The disposal could raise pounds 300m to pounds 400m, analysts said. Dalgety has appointed Lazards to find buyers for the food ingredients business. Interested parties could include Kerry Group, the Irish food company, at a price of up to pounds 200m. The flour milling operation, part of the food ingredients division, could be of interest to Green Core, the American group which has been expanding in the UK, and Associated British Foods. Analysts expect a price tag of around pounds 125m

The sale of the Martin Brower business, which will be overseen by Morgan Stanley, could attract an American buyer or management buyout. The business could be worth up to pounds 90m, less a substantial tax charge.

Mr Hanna said Dalgety would remain a substantial business with pounds 2bn of sales, 8,000 employees and the number two in the pounds 5bn-a-year European pet food market.

Though analysts welcomed the decision to introduce more focus in the business they said the key to its success would be its bid to restore the pet foods division to better financial health. Sir Denys said the pounds 440m acquisition of Quaker's European pet foods division had been right but that the integration had been too slow. Costs were too high and production record had been poor, he said.

The company pointed out that Dalgety has successful pet food brands such as Winalot and Felix and has 25 per cent of the European pet food market. It ranks behind Mars, whose Pedigree Petfoods division dominates the European market with a share of around 45 per cent. Nestle, the number three, has just 7 per cent.

"If they can't get a decent return on it [pet food], they don't deserve to own it," said David Laing of Henderson Crosthwaite.

Failure to improve the pet foods opertion would probably result in a takeover of Dalgety, ending 100 years of independence. However, analysts said a strike was unlikely at the current share price.

The shake-up at Dalgety ends a dismal year for the company which has been characterised by a poor share price performance, large exceptional provisions, two profits warnings and a cut in the dividend by a third.

The year's results to June were in line with the July profits warning. Adjusted profits, before exceptionals, fell from pounds 102m to pounds 66.2m. Pet food profits collapsed by pounds 12m to pounds 26.4m due to supply chain costs which included the closure of three factories with the loss of 300 jobs. A further 300 will go in a shake-up in Europe.

There were pounds 138m of exceptional costs including a cash element of pounds 41m. Of the exceptional charges, pounds 64m was for a re-organisation of the pet foods division and pounds 12m related to the direct costs of BSE. The full-year dividend was 14.5p against 22p last year.

Sir Denys said he would be seeing institutional shareholders today to present the results of the strategic review. The shares closed 0.5p higher at 274.5p.

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